Tuesday, June 22, 2010

The NY Times Is Lucky The Spider Bit Me

Because if the spider hadn't bitten me, I'd have enough energy to really eviscerate this paper that should adopt the motto "All The Pez That's Fit To Print". Just look at this idiocy.

The White House is concerned that health insurers will blame the new law for increases in premiums that are intended to maximize profits rather than covering claims. The administration is also closely watching investigations by a number of states into the actuarial soundness of double-digit rate increases.

They gargle on with this nonsense, which surely came straight from the White House:

The new law requires the health secretary to work with states to establish a process for annual reviews of “unreasonable increases in premiums.” Administration officials said Monday that they were still writing regulations to define “unreasonable increases.”

So the article then proceeds to discuss state crackdowns on insurance increases:

In Massachusetts, the administration of Gov. Deval Patrick, a Democrat, used long-untapped power to deny 9 of 10 rate increases requested by the state’s insurers, provoking a lawsuit from the industry. A court in Maine recently upheld a smaller rate increase for that state’s largest insurer — 10.9 percent instead of 18.1 percent — that had been ordered by the insurance superintendent.

See, this is just out and out misrepresentation. A google would have shown the hapless Sack and Stolberg that the Massachusetts situation is rather obviously political. The court in MA told the insurers to wait for the departmental grievance process to work, even though the MA law explicitly says insurers can't set rates. Everyone knows that the insurance companies will be granted major increases after the elections are over, because, lalala, they are losing money:

The state's four biggest health insurers today posted first-quarter losses totaling more than $150 million, with three of the carriers blaming the bulk of their deficit on the Patrick administration's decision to cap rate increases for individuals and small businesses.

Insurance company accounting is rather similar to bank accounting. There are reserves, and the companies are rapidly drawing their reserves down to the point at which the state department of insurance is supposed to ask them to present a plan to bolster their reserves. Actually, according to court documents, at least one of them was already at that point before the first quarter.

Maine is another interesting case (long WSJ article). Kofman, who heads the insurance department there, explicitly denied any profit to Anthem according to her own analysis. That leaves Anthem taking a loss on its individual policies. The court allowed it. Many of these companies will have to quit doing business if this continues, and insurance insiders are looking for a way out. In Maine, either Anthem will shift costs from individual policies to group policies, or it will slowly end up becoming unviable as an insurance company.

Now so far so good, but if the estimable reporting team of journalists operating under the names Kevin Sack and Sheryl Gay Stolberg had been able to spare the time to google, they might have discovered that Maine posts operating reports by medical insurance company by year on its state insurance department website. And that website is here.

Had they dared to click the line for 2009 Anthem results, they would have discovered the following from pages 1 and 2:

Anthem earned individual premiums of 64,365,540 in 2009.

Anthem paid claims on individuals amounting to 60,428,948, which meant it needed to throw into reserves since it had an operating loss (under insurance guidelines), so it threw in about 10% or 6,347,696.

It had other direct costs not including general overhead (such as wages) of nearly 1.8 million, which means that its direct losses even if the rest of the company were to subsidize this business line were over 4 million dollars.

If you're wondering, no, the rest of this company really shouldn't be subsidizing this business line,

Thus Anthem's underwriting loss for 2009 on individual insurance was 9,385,984.00, and a premium increase of about 6.5 million wasn't going to cover it.

But I suppose trained journalists are trained not to investigate anything. The end result is an article that seems to imply that the federal government will somehow be able to get insurance companies to lower increases, but most companies are already running close to the line at which their businesses are no longer viable.

Anyway, if you wanted to know more about insurance accounting, the most important thing is that for each period of insurance, there is a lag of claims and claims paid. You reserve extra for the unpaid (and also unsubmitted claims) for the insured period. This is particularly important when claims are rising so much faster than premiums. Calculating a risk-based reserve is done according to each state's regulations.

This pdf is short summary of the 2009 recommendation for risk-based capital treatment from NAIC, and it includes health insurers. Note the risk-based capital levels, formulas, and actions recommended.

And this pdf is the Affidavit of Kevin Beagan of the MA Division of Insurance in the court case that gets such short shrift in the NY Pez Dispenser. Read it, and you will note at least some of the companies were in trouble. And note that he is claiming that 128% RBC ratios are like, no problem, man, even though RBC below 200% is a trouble sign. Just because the Division of Insurance doesn't have to seize the company until RBC hits 70% doesn't mean the insurance company is safe!

Below 200% the company is supposed to submit a plan to the regulator identifying how it got there and what it is going to do to fix it. For RBC ratios 100-150%, the company submits a plan and the regulator goes in to audit, then tells the company what to do to get back up to a respectable ratio. MA wasn'tletting companies raise rates even when they should have been requiring the companies to submit plans to up their capital levels followed by a Division of Insurance audit and corrective orders - because that would require raising premiums.

I coulda been a great journalist except I like the facts, which just mess up the narrative.

And in conclusion, just because it gives me a warm little thrill (sorta, ya know, a little tingle up the leg) to think that Google will forever associate these words, because hey, this blog has a high Google position generally:Kevin SackSheryl Gay StolbergIncompetent journalists who regurgitate White House press releases instead of doing a little research of their own.

I think the Shrink thinks that the current administration is a bunch of incompetent boobs anyway, which means that we have incompetent boobs regurgitating White House press releases written by incompetent boobs. And btw, the Maine insurance guru Kofman is a DC insider and spent a lot of time as - you guessed it - a university professor.

And just because, hey, a twelve year old might read this post and wind up knowing more about insurance premiums and trends than all the experts, here is a GAO report from 2003 which explains how small businesses could obtain affordable coverage. The fact that none of this made it into the health care reform bill is why NFIB is so furious about this legislation.

Long time reader and admirer, first time poster. Love your writing, wish I had your brain.

Just a brief comment on Anthem:

Does $1.8 million in non-overhead expense to process $60 million in claims seem reasonable?

Seems high to me, but I come from the banking world where the department I worked in processed several billion dollars in line of credit transactions related to residential mortgages with likely similar non-overhead costs.

Dig - I would not know what is reasonable, but one thing to remember is that many more individual claims transactions would be involved.

When they get into case management, it does get more complex. For example, the insurance co my brother has (the bro who is having twins) assigned a nurse to follow through the entire gestation/birth cycle. They are paying for a lot more doctor visits and extra tests, and they even sent my sister-in-law a book about what to expect. The costs for birth problems are very high, so insurance companies pay for a lot of preventive stuff.

One obvious clue that the insurance company really was losing money is that checks out (prescriptions and medical payments) totalled to almost 94% of earned premiums. Even if every subscriber had been terminated at the end of 2009, there would still be at least a half a month's claims still to be paid, (another 3-5 million dollars). They took a dead loss on 2009 even if you ignore all administrative costs.

No one even suggests that insurance companies should be allowed less than 15% for administrative costs, and I think under the health care reform formula worked out, that 3/4 million is actually included in benefits, not overhead. It is a type of medical management.

When you have companies with RBCs of less than 200%, that's another good clue.

Obviously the Feds were arbitrary, unless the regulatory body is so riddled with corruption that they have to clean house and totally reorganize. But I am sure the government doesn't want to go into court and say that.

MA wasn't letting companies raise rates even when they should have been requiring the companies to submit plans to up their capital levels followed by a Division of Insurance audit and corrective orders - because that would require raising premiums.

Well, they could have invested in real estate instead of raising premiums!

What, you mean these insurance companies aren't getting the 11% returns the state pension plans are getting?

What do you mean the state pension plans aren't even getting 2% returns?

Charles, yes, insurance companies have been hurt by investment losses on their reserves. The stock market gain helped them, and I wonder if our current doldrums won't have an effect. I am not so sure that these states don't want the ins cos to somehow magic up money. It's not funny.

Tom - I am running a fever and coughing, and I really did not need to learn that now I should be reading the National Enquirer? Is that what you are saying?

Yes, an interesting read. Takes the judge about 18 pages, but once he gets warmed up, look out. Also, as I think you've mentioned before all the juicy stuff is in the footnotes. :-)

BTW, upon re-reading these comments I apologize if my first couple come across more than a little arrogant. I was in a hurry at the time. Had about a half hour between engagements and was trying to do too many things at once in the between time. Was thinking/typing a little chatty, but now it reads a little... self-absorbed. Not my intention. Conveying tone in writing is always a tricky thing.

I just find it amusing that every state is in the insurance business (Retirement Income insurance, for example) and is in the exact same boat as the health insurance companies. The states want to raise premiums (read: taxes) to cover their shortfalls, but when the health insurance companies want to do the same thing the states who control the rates say "no". When they go broke, the states will take them over and will deny more claims, will be later with payments, and will jack up premiums.

Interestingly, the RBC ratios are dangerously low, but these Democrat regulators don't seem to be doing any regulatin'. I'm not partisan by any stretch of the imagination, but if the Democrats want to bitch and moan about regulators not regulating, they need to look in the mirror first. Childishness.

"The White House is concerned that health insurers will blame the new law for increases in premiums ... Administration officials said ... they {are} still writing regulations to define “unreasonable increases.” "=====================

Members of this administration have perhaps smoked too much pot, snorted too much "blow", and feasted on magic mushrooms to the point they're stuck in Alice's Wonderland where "words mean what I want them to mean"... or, something. To date, they have repeatedly demonstrated that they're making policy based on assumptions that involve some alternate universe with a strange, upside-down reality.

[And as far as the arguments about whether the President should be playing as much golf as he has-- I'd be SO HAPPY if he stayed out on the links all day, every day. Any minute that he's out there swinging the clubs is one more minute that he's NOT perverting the Constitution or crushing the economy. Only 2-1/2 years to go.]